International Trade Committee on March 10th, 2011

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. McMahon.

Mr. Julian, I don't know if we should just give you six minutes. You've already taken a minute.

No, go ahead for seven minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

Thanks to our witnesses, particularly you, Mr. Sinclair. You've done your homework; you obviously understand the file. We appreciate your bringing your expertise to the committee.

I'd like to ask two sets of questions. You made a comment, and I was very interested in it, saying that even though the Newfoundland and Labrador legislature had passed legislation that allowed for the compensation of real assets by the company, the company did not follow up; the company did not pursue that avenue.

I'm interested in a little more detail there, because the company didn't follow up on that. They didn't use the court system. In a very real sense, what they've done is try to destroy the rule of law by going directly to the federal government with their hands out and just asking for money. There's no court process, no legal process involved. The company obviously would not have won in a court of law.

How does this decision impact upon companies now--being able to rip up the rule of law, not go through the court system, and simply go to the federal government and demand money?

I'm also interested in the fact that this is a Canadian company headquartered in Canada. The witnesses from DFAIT confirmed that on Tuesday. What was supposed to be used by foreign investors can now be used by Canadian companies. I'm interested in what the implications are there as well.

My final question is this. We're counting up the hundreds of millions of dollars: $130 million that was given to AbitibiBowater; another $30 million that was assumed by the Newfoundland and Labrador government, which was certainly partial compensation; the environmental remediation that Mr. Simms has spoken about, which is in the hundreds of millions of dollars range. How much is it going to cost Canadian taxpayers and Newfoundland and Labrador taxpayers because the government is not pushing AbitibiBowater to respect its engagements and is simply handing money over?

[Scott Sinclair]

First, the Newfoundland legislation did provide for the Newfoundland government to compensate AbitibiBowater for its real property—its land, its equipment, and the sorts of assets that are normally considered compensable in an expropriation under Canadian law.

The legislation also blocked the company's assets to the courts, which is more common that you would think in Canada. Particularly in areas of environmental regulation and environmental protection, it's not uncommon for a government to extinguish all claims and to set up a process to settle claims, or, in some cases, even impose a settlement.

I have no doubt that if AbitibiBowater had followed that process, it would, at some point, have gotten value for its real assets. It might not have been entirely happy with it, but I think it would have been.

I'm not privy to the discussions that went on. There obviously were discussions between the province and the company over compensation, and as we heard, there were some trilateral discussions as well. I don't know if they were only tied to the NAFTA case or not.

As we heard in the testimony on Tuesday—and I'm not privy to these negotiations—the Newfoundland government was insisting that these other legitimate claims be factored into any settlement.

[A voice]

You're saying reasonable claims.

[Scott Sinclair]

Yes; they would include severance, pension, and environmental remediation claims. That was clearly their position. You'd have to invite the company to the committee to discuss what actually happened there.

The point you raise about the nationality of the company is a very important one. Again, it's another of these vague and open-ended problems in this arbitration system. In this case, AbitibiBowater, as a result of the merger, at least had substantial business operations in the United States.

You do have cases like the Gallo case, involving Ontario's legislation ending the scheme to dispose of Toronto's garbage at Adams Lake, in which basically the domestic investors have already settled and been compensated. Now they've passed off the claim to a U.S. individual, who's pursuing it under NAFTA. In my view, this is totally unacceptable.

You heard from Gus Van Harten that these sorts of gimmicks are quite common, actually, in international arbitration—unfortunately common.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Just for the record, what you're saying is that the Canadian investors in this particular case, the Gallo case, were compensated—

[Scott Sinclair]

Yes, they were--

[Peter Julian, NDP, Burnaby—New Westminster, BC]

--and now they're going for double, triple, quadruple compensation from—

[Scott Sinclair]

They're rolling the dice and trying to get a payoff under NAFTA.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

In the same way that AbitibiBowater just went to the government and said, “Hand over money”, you can now have other companies, Canadian as well, just going to the government and saying, “Hand over money; just shovel that money off the back of a truck to me”.

[Scott Sinclair]

I think the key thing about AbitibiBowater's claim is that it was appropriate for them to expect compensation. I think the Newfoundland government accepted this for their real assets.

Contrary to what Mr. McMahon has said, the full range of resource rights are not considered property rights. It's not just a matter of governments legislating this. Even when governments don't prescribe, and it's left to the courts, there's a common law presumption that compensation will be paid.

The courts do not protect all types of resource rights and permits. It's not an ownership right. These are publicly owned resources. This is an issue for every province in Canada. I served as a provincial official, and I can tell you that every province in Canada, including those that are very supportive of these agreements, protect their rights over resources and are insistent on this notion that these are publicly owned resources and that access to them is a conditional right.

To your last point, yes, there are a lot of claims. There are a variety of interests involved here. Unfortunately, the various levels of government are picking up the tab. I think the Newfoundland government has stepped into the breach. I'm disappointed that the only federal intervention was solely on behalf of the company and its investors.

[The Chair, Conservative, Lee Richardson]

Go ahead, Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you very much, Chair.

I will be sharing my time with Mr. Trost.

In the same spirit that Mr. Julian saw fit to have Mr. Sinclair be his sole respondent, I might actually give Mr. McMahon some balanced time on this issue, just so that we get a thoughtful and balanced perspective.

It's rather interesting; as I've heard the testimony, the main actors in this situation, of course, are the Province of Newfoundland and Labrador—I dare not say, Mr. Simms, the “republic”, as it's a bit early to call it that--as well as AbitibiBowater and the Government of Canada. Lest we forget, the tragedy in this is the tragedy that it came to pass at all. I don't think it's the ultimate outcome that anyone would have wished.

As I think about this whole circumstance, what we have is a rules-based system that allows companies to properly become engaged in legal contracts. Should there be disputes, then we have a dispute settlement mechanism that creates outcomes. As I think of it, in the absence of a rules-based system, to me it asks the question of what the expectation would be.

Mr. McMahon, you made the point, and I think it's a very good one, that if we expect fairness in Canadian business dealings internationally, without the rule of law being maintained, particularly in trade, how would you strike that balance? In other words, what would Canadian businesses expect abroad in terms of their dealings?

Could you expand on that just a little bit for us, please?

[Fred McMahon]

Certainly.

Canadian businesses and Quebec businesses--for example, Bombardier--have worldwide networks. The outflow of Canadian investment is about equal to the inflow of Canadian investment. Most of our great firms, or a few of our great firms, would survive without international markets. I mentioned Bombardier, and there's Magna. Name any major manufacturing or service industry in Canada, such as our banks; if rules were simply dropped, as my friend here would like, internationally our businesses would be left high and dry.

I'd like to make a further domestic point. If we give Canadian provinces untrammelled sovereignty over resources so that they can make and break agreements when they wish--withdraw timber rights, withdraw mineral rights, withdraw water rights that they've agreed to--and we give them the power to do that without compensation, we simply shut down all mining, all oil and gas exploration, all timber harvesting in Canada. No company is going to go in if, on a Wednesday, the provincial government can simply say, “All these properties actually belong to the state. We have decided to terminate your thing. It doesn't matter that you've just spent a billion dollars building a mine. We're taking away your mineral resources because we want to.” It could be for whatever reason. No one would invest in any of these industries that are so important to rural Canada.

You have it both internationally, as you pointed out--and pointed out extremely well, I thought--but if we went the full extent of what's being recommended here, with no compensation for resource rights in Canada, we would also see an immense blow to our economy and a devastation of rural life if we accepted that provinces have sovereignty and are not constrained by their own agreements.

[Ed Holder, Conservative, London West, ON]

You know, it's rather interesting; in your initial remarks, you talked about taking a bit of a philosophical bent. I have to declare to all at this table that I did a philosophy major at Western, which is why I went into insurance: that's what you can do with a philosophy degree, at least from my standpoint.

[A voice]

You can go into politics.

[Ed Holder, Conservative, London West, ON]

There you go, and my Cape Breton mother was very proud, I want you to know.

[A voice]

Hear, hear!

[Ed Holder, Conservative, London West, ON]

I keep coming back to this, I guess, but I heard a couple of comments from my colleague Mr. Julian that I just have to challenge. You can't leave those kinds of things sitting out there. It's not appropriate.

One of the things I heard him say was that AbitibiBowater ripped up the rule of law, and that AbitibiBowater was talking about double, triple, quadruple compensation. That feels outrageous to me, and I just have to challenge that and say that it's just not appropriate.

As my last question--I'd ask you to be briefer in your response than I have been in my comment, just so that Mr. Trost can ask a question as well--what have we learned from the whole dealings between AbitibiBowater and the province and the Government of Canada?

[Fred McMahon]

Very simply, I think we should follow our own treaties. When the Government of Canada, representing the people of Canada, signs an international treaty, we should accept a rules-based system and not believe that we have the power to rip it up.

We may have other policy questions at stake, but as I've said, the legal agreement and compensation constitute a separate issue from other concerns. You have to deal appropriately with respecting the international framework of treaty laws that cover this. You may have other complaints, but that's a separate issue.

[Ed Holder, Conservative, London West, ON]

Did I leave time for my colleague?

[The Chair, Conservative, Lee Richardson]

You have less than a minute.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

Mr. McMahon, we're looking at this case specifically, but we're also looking at the issue more broadly.

Does the Fraser Institute have any studies you could forward to the committee on the economic impact of protecting foreign investors and how it affects capital flow and investment to companies? Is there anything you can forward to the committee?

[Fred McMahon]

We haven't done anything specifically, but there would certainly be studies that I could look up.